Question

In: Accounting

On January 1, 2012, Uncle Company purchased 80 percent of Nephew Company’s capital stock for $680,000...

On January 1, 2012, Uncle Company purchased 80 percent of Nephew Company’s capital stock for $680,000 in cash and other assets. Nephew had a book value of $828,000 and the 20 percent noncontrolling interest fair value was $170,000 on that date. On January 1, 2011, Nephew had acquired 30 percent of Uncle for $348,250. Uncle’s appropriately adjusted book value as of that date was $1,127,500.

      Separate operating income figures (not including investment income) for these two companies follow. In addition, Uncle declares and pays $15,000 in dividends to shareholders each year and Nephew distributes $2,000 annually. Any excess fair-value allocations are amortized over a 10-year period.

  Year

Uncle
Company

Nephew
Company

  2012

$

143,000    

$

34,400   

  2013

149,000    

59,200   

  2014

158,000    

62,200   

a.

Assume that Uncle applies the equity method to account for this investment in Nephew. What is the subsidiary’s income recognized by Uncle in 2014?

b.

What is the non controlling interest’s share of 2014 consolidated net income?

Solutions

Expert Solution

Answer a.
Consideration transferred by Uncle    680,000.00
Non-Controlling Interest Fair Value    170,000.00
Total Fair Value - Nephew Company    850,000.00
Book Value    828,000.00
Intangible Assets      22,000.00
Amortization Expenses - Intangible Assets - $22,000 / 10 Years        2,200.00
Net Income - Nephew Company - 2014      62,200.00
Amortization Expenses - Intangible Assets      (2,200.00)
Accrual Based Net Income      60,000.00
Uncle Company Share in Net Income of Nephew Company - 80%      48,000.00
Answer b.
Accrual Based Net Income - Nephew Company      60,000.00
Dividends Declared by Uncle Company to Nephew Company - $15,000 X 30%        4,500.00
Income to Outside Owners      64,500.00
Non-Controlling Interest Share in Consolidated Net Income - $64,500 X 20%      12,900.00

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for...
On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for $490,000. Birch reported a $477,500 book value and the fair value of the noncontrolling interest was $122,500 on that date. Also, on January 1, 2013, Birch acquired 80 percent of Cedar Company for $192,000 when Cedar had a $141,000 book value and the 20 percent noncontrolling interest was valued at $48,000. In each acquisition, the subsidiary’s excess acquisition-date fair over book value was assigned...
On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for...
On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for $504,000. Birch reported a $510,000 book value and the fair value of the noncontrolling interest was $126,000 on that date. Also, on January 1, 2013, Birch acquired 80 percent of Cedar Company for $160,000 when Cedar had a $164,000 book value and the 20 percent noncontrolling interest was valued at $40,000. In each acquisition, the subsidiary’s excess acquisition-date fair over book value was assigned...
On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for...
On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for $504,000. Birch reported a $510,000 book value and the fair value of the noncontrolling interest was $126,000 on that date. Also, on January 1, 2013, Birch acquired 80 percent of Cedar Company for $160,000 when Cedar had a $164,000 book value and the 20 percent noncontrolling interest was valued at $40,000. In each acquisition, the subsidiary’s excess acquisition-date fair over book value was assigned...
On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for...
On January 1, 2012, Aspen Company acquired 80 percent of Birch Company’s outstanding voting stock for $452,000. Birch reported a $505,000 book value and the fair value of the noncontrolling interest was $113,000 on that date. Also, on January 1, 2013, Birch acquired 80 percent of Cedar Company for $112,000 when Cedar had a $104,000 book value and the 20 percent noncontrolling interest was valued at $28,000. In each acquisition, the subsidiary’s excess acquisition-date fair over book value was assigned...
On January 1, 2010, Porter Company purchased an 80% interest in the capital stock of Salem...
On January 1, 2010, Porter Company purchased an 80% interest in the capital stock of Salem Company for $850,000. At that time, Salem Company had capital stock of $550,000 an retained earnings of $80,000. Differences between the fair value and the book value of the identifiable assets of Salem Company were as follows: Fair Value in Excess of Book Value Equipment............. $130,000 Land............. 65,000 Inventory............. 40,000 The book values of all other assets and liabilities of Salem Company were equal...
On January 1, 2019, Monica Company acquired 80 percent of Young Company’s outstanding common stock for...
On January 1, 2019, Monica Company acquired 80 percent of Young Company’s outstanding common stock for $888,000. The fair value of the noncontrolling interest at the acquisition date was $222,000. Young reported stockholders’ equity accounts on that date as follows: Common stock—$10 par value $ 300,000 Additional paid-in capital 70,000 Retained earnings 630,000 In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $90,000. Any remaining...
Pointure Company acquired 80 percent of Souby Company’s outstanding common stock for $664,000 on January 1,...
Pointure Company acquired 80 percent of Souby Company’s outstanding common stock for $664,000 on January 1, 2019, when the book value of Souby’s net assets was equal to $830,000. Pointure uses the equity method to account for investments. Trial Balance items for Pointure and Souby as of December 31, 2019, are as follows: Pointure Souby Debit Credit Debit Credit Cash 125,000 70,000 Accounts Receivable 396,000 90,000 Inventory 450,000 200,000 Investment in Souby 868,000 Plant & Equipment 755,000 585,000 Other Assets...
On January 1, 2016, Monica Company acquired 80 percent of Young Company’s outstanding common stock for...
On January 1, 2016, Monica Company acquired 80 percent of Young Company’s outstanding common stock for $728,000. The fair value of the noncontrolling interest at the acquisition date was $182,000. Young reported stockholders’ equity accounts on that date as follows: Common stock—$10 par value $ 300,000 Additional paid-in capital 70,000 Retained earnings 430,000 In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $70,000. Any remaining...
On January 1, 2019, Monica Company acquired 80 percent of Young Company’s outstanding common stock for...
On January 1, 2019, Monica Company acquired 80 percent of Young Company’s outstanding common stock for $776,000. The fair value of the noncontrolling interest at the acquisition date was $194,000. Young reported stockholders’ equity accounts on that date as follows: Common stock—$10 par value $ 200,000 Additional paid-in capital 70,000 Retained earnings 490,000 In establishing the acquisition value, Monica appraised Young's assets and ascertained that the accounting records undervalued a building (with a five-year remaining life) by $70,000. Any remaining...
On January 1, 2016, Aspen Company acquired 80 percent of Birch Company’s voting stock for $288,000....
On January 1, 2016, Aspen Company acquired 80 percent of Birch Company’s voting stock for $288,000. Birch reported a $300,000 book value, and the fair value of the noncontrolling interest was $72,000 on that date. Then, on January 1, 2017, Birch acquired 80 percent of Cedar Company for $104,000 when Cedar had a $100,000 book value and the 20 percent noncontrolling interest was valued at $26,000. In each acquisition, the subsidiary’s excess acquisition-date fair over book value was assigned to...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT